The air raid on the Iranian capital was reported by an Iraqi military spokesman and confirmed by Iran. The Iraqis said their warplanes also hit a "large naval target"--a term usually referring to an oil tanker--in the Persian Gulf near Iran's main oil terminal at Kharg Island. Independent shipping sources could not confirm the report.

Iran's official news agency said Iranian jet fighters bombed military and economic facilities in the Iraqi city of Maydan, on the central front, in retaliation for the Iraqi raid on Tehran. The attack on Maydan inflicted "heavy casualties and damage," the agency said.

Iran gave conflicting reports of casualties from the early morning attack on the southern residential areas of its capital. Tehran residents said Iraqi bombs fell on two areas of the capital and on the city's main bus terminal.

Tehran residents contacted by telephone from Athens said many more people died in the bombings than those listed in the official death toll.

The attack came just hours before Iranians took to the streets of Tehran and other cities to celebrate Islamic Republic Day, the sixth anniversary of a national referendum that led to the establishment of the Muslim fundamentalist republic on April 1, 1979.

Crowds marched to Tehran University shouting slogans in support of their government, led by the Ayatollah Ruhollah Khomeini, the Iranian news agency said.

The agency said that "many houses were destroyed and damaged in the attack," and one Tehran resident said he saw "many, many bodies being taken away."

Another Tehran resident said a large number of people living in the capital were leaving for towns considered safer.

Cover for Warplanes

A source in Tehran said Iraqi warplanes have flown close to commercial airliners over Iran at least twice in the past few days as cover for attacks on the Iranian capital.

Tehran radio also said Iranian artillery bombarded the strategic Iraqi port of Basra and other points in southern Iraq "following the attacks on residential areas of our cities."

Iraq had no immediate comment on the reports.

The Iraqi air raid followed a powerful explosion in Baghdad early Sunday, apparently caused by an Iranian surface-to-surface missile. No casualties were reported from the blast.

The Iran-Iraq border war began in September, 1980, over longstanding territorial disputes and recently escalated on land as well as at sea, with repeated attacks on neutral shipping in the Persian Gulf.

The escalation in fighting over the last month has led to a series of diplomatic contacts aimed at exploring ways to end the conflict.

In Riyadh, Saudi Arabia, U.N. Secretary General Javier Perez de Cuellar said Monday that the Iranian leadership has turned down his proposals for a comprehensive settlement.

Issue of Chemical Weapons

After talks with Saudi leaders on the latest developments in the war, the U.N. leader told reporters that his plan includes proposed discussions on ending the war, halting use of chemical weapons, ceasing bombardment of civilian targets, demilitarizing airspace for passenger aircraft and ending air attacks on oil tankers.

Although he indirectly blamed Iran for refusing to discuss a comprehensive settlement, Perez de Cuellar said he would be ready to go to Tehran at any time.

In Tokyo, a Japanese Foreign Ministry official quoted visiting Iraqi Foreign Minister Tarik Aziz as saying his government is ready to accept any proposals leading to a "comprehensive peace" but not a partial cease-fire similar to one that Perez de Cuellar helped arrange last June 12.

That agreement, which collapsed March 5, spared civilian targets in both countries.